COMMUNITY ADVANTAGE. Pilot Program Opportunity. Pilot program launched in February of 2011

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COMMUNITY ADVANTAGE

Pilot Program Opportunity

Community Advantage History

 Pilot program launched in February of 2011



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d

h

b

d d

 Pilot ends March 15, 2014 but may be extended

or made permanent

 After initial launch, desirable modifications

were identified

 Participant Guide revised in December of 2011,

with Federal Register Notice published February

8, 2012

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Community Advantage Mission

Increase access

By expanding

As well as

Increase access

to credit for

small

businesses in

underserved

areas

By expanding

points of access

to SBA 7(a) loan

guaranty

program

As well as

assuring

Management &

Technical

Assistance is

provided when

needed

3 Community Advantage Pilot Program

SBA Access to Capital

SBA provides access to capital to small business owners

through our lending partners, by either:

 Providing loan funds to non‐profit organizations which

make loans directly to small business owners

– Microloan Program – Intermediary Lending Pilot Program

 Guaranteeing a loan made by a lending partner to a

small business owner

– 7(a) Loan Guaranty Program – 504 Loan Program Community Advantage provides non‐ profit mission lenders access to 7(a), SBA’s flagship finance program

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SBA 7(a) Loan Guaranty Program

 SBA provides a loan guaranty to a lending partner

which is a partial refund for a failed loan

 Guaranty allows lender to make a loan to a small

business owner that would be otherwise viewed as

too risky. Common reasons:

 Business loan is for a start‐up  Borrower has insufficient collateralBorrower has insufficient collateral

 Borrower needs non‐standard repayment terms  Business type is too risky

Who is eligible?

To be eligible, organizations must be one of

the following:

 SBA Microloan Program Intermediary

 SBA Certified Development Company (504

Lender)

 Non‐Federally Regulated Community

Development Financial Institution (CDFI) certified

by U.S. Treasury

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Community Advantage 7(a): Key Characteristics

• $250,000 Maximum loan size • Prime + 6% Maximum interest rate • 15% cash reserve on unguaranteed portion of loan • Under review LLRF requirement • 60% of the number of CA loans must be in underserved markets Markets served 7 Community Advantage Pilot Program

underserved markets • Encouraged when appropriate but not required Management and technical assistance

Definition of Underserved Markets

 Low‐to‐Moderate Income community

 Businesses where more than 50% of full‐time workforce

is low‐income or resides in LMI census tracts

 Empowerment Zones and Enterprise Communities

 New businesses (in business for no more than 2 years)

 Businesses eligible for Patriot Express

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Key Program Features

• 85% guaranty for loans of $150,000 or less • 75% guaranty for loans greater than $150,000

Percent of

Guarantyy

• Maximum of 10 years for working capital • Maximum of 10 years or useful life for equipment • Maximum of 25 years for real estate

Maturity

• 0.25% for maturities ≤ 12 months • For maturities > 12 months

Guaranty

• For maturities > 12 months • 2.0% for gross CA loan ≤ $150,000 • 3.0% for gross CA loan > $150,000 • 0.55% on‐going guaranty fee paid by lender

Guaranty

Fees

How does the CA Pilot Program work?

The 7(a) program provides a guaranty for a portion of a small business

loan, and isnot a direct loan from SBA At least initially, a lender must submit a small business loan to SBA for approval before closing the loan The lender is responsible for following the rules and procedures outlined in 13 CFR as well as all SOPs The lender’s primary points of contact are the centers (loan origination, servicing & liquidation) as well as SBA’s local district offices

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How are CA Lenders funding loans?

 Existing funds or current income stream

 W

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k

 Warehouse lines of credit from commercial banks

o

Bank of America

o

JPMorgan Chase

o

Wells Fargo

o

Other local lenders

 Sale of loans on secondary market

Secondary Market Sales

• Lender sells guaranteed portion of loan through broker dealer • Lender receives premium for sale • Lender retains unguaranteed portion of loan • Lender continues to service the loan for an ongoing fee (usually 1%). Lender transmits the pro‐rata share of principal & interest to Colson, the fiscal transfer agent

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Key Benefits of Secondary Market Sales

 Premium Income

 Proceeds from sale permit lender

to make additional loans

Caveat: It is difficult to modify a loan after it is

sold into the secondary market. SBA is working to

develop a set of investors that would be willing to

meet the needs of mission lenders.

Lender Application Process

1. Collect information and certifications listed in Community Advantage Participant Guide located at: www.sba.gov/advantage page 7. 2 Complete SBA Form 2301 Part E which can be found on 2. Complete SBA Form 2301 Part E, which can be found on www.sba.gov/for‐lenderspage of SBA website, and required attachments. 3. Send application package to local SBA District Office. 4. District Office will forward to Director, Office of Credit Risk Management for evaluation and final decision. Brand Promise: A decision will be made no later than 45 days after OCRM receives a complete application.

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Profile of Approved Applicants

Approved applicant organizations have:

 Staff with significant relevant lending experience

 Either in‐house M&TA capability or established relationship with  Either in‐house M&TA capability or established relationship with outside provider

Approved applicant organizations have the following financial

characteristics:

 Unrestricted or temporarily restricted net assets of more than $350,000 $ ,  Ability to fund CA loans through cash, income, or a balance sheet that would permit additional borrowing  Audit reports with no material weaknesses 15 Community Advantage Pilot Program

Profile of Approved Applicants

Approved applications include:

 Well developed business plan

 Well documented description of service delivery area

 Clearly explained plan for outreach efforts to target market

 Sufficient, clear & well documented loan policies and

proce

dures

Approved applicants also must be in compliance with current

SBA programs.

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Community Advantage Program Changes

 Maximum interest rate raised to Prime + 6%

from Prime + 4%

 CA Lenders may use Lender Service Providers

 Oversight strategy revised

o Lenders do not automatically receive examination or review after first year o SBA will evaluate CA Lender’s level of activity, performance metrics & risk rating to determine oversight tool to employ o In general, for CA Lenders with CA balance ≤ $3 million, annual oversight cost will be $150 per $1 million outstanding 17 Community Advantage Pilot Program